Electronics manufacturing has long depended on trade agreements to get business done. In the wake of a new presidential administration, electronics OEMs, distributors, and component makers are questioning how President Elect Trump will move forward with threats to withdraw America from its trade agreements.
Trump has stated his intention to take aim at trade agreements, from the North America Free Trade Agreement (NAFTA), born three decades ago, to the Trans Pacific Partnership (TPP), which is in its infancy, in an effort to increase jobs and revenue in the United States. On the darker side of the equation, some fear the potential of trade wars and price hikes for consumers and manufacturers alike.
“In the context of tariffs and global trade, if anything restricts the competitiveness then there is presumed impact on cost of goods, bill of materials, and more,” Jason Dea, director of product marketing at EHS service and solutions provider Intelex told EBN in an interview. “By restricting global trade, there is likely to be a tangible bottom line impact. It’s enormously complexity.”
Whatever happens, a nimble and transparent supply chain will be critical to success in the next era of the global electronics manufacturing sector.
The plan for the future
During a statement about his plan for the Presidential transition and the first 100 days in office, Trump said:
My agenda will be based on simple core principal: Putting America first. Whether it is producing steel, building cars, or curing disease, I want the next generation of production and innovation to happen right here on our great homeland, America, creating wealth and jobs for American workers.
As with many statements made on the campaign trail, the biggest problem is that talking about making these changes is much harder than doing it. “The challenge with it is that a lot of the promises that have been made are overly simplistic,” said Dea. “If you restrict one thing in today's economy, there are no straight lines of cause and effect. If you restrict things, there will be both benefits and hidden costs.”
The death of the Trans-Pacific Partnership
Included on the list of executive actions for his first days and weeks in office is exiting the TPP. “I am going to issue a notification of intent to withdraw from the TPP, a potential disaster for our country,” Trump added. “Instead, we will negotiate fair bilateral trade deals that bring jobs and industry back to American shores.”
The computer and electronics industry, with its deeply embedded business in China and other parts of the world, has a lot to lose in this arena. Dea said:
If you look at electronics industry as a whole, the concentration of suppliers, when it comes to electronics and computer manufacturing, has largely shifted to Asia. The Western world does design but manufacturing has been moved to Taiwan, Korea, etc. A lot of materials are geographically closer to Asia as well. If agreement on TPP was to allow regions to concentrate on what they do best and even things out in macro level, that could have eased costs when you get into electronics products.
Similarly, Trump has made clear the intent to withdraw from NAFTA. This change has the potential to eradicate millions of industrial jobs and made the normal course of business between America its neighbors to the North and South nearly impossible. An end of NAFTA would put an end to the availability of flexible work visas between the United States and Canada, for example.
“All links in the chain would be impacted,” said Dea. “NAFTA has allowed for more freedom of movement for engineers and other talent and disrupting that is a hidden risk. There’s a potential for brain drain—in many instances, organizations are looking to find the best, not cheapest, talent. Any restrictions have the potential to be challenging.”
During this time of change, electronics OEMs would be well served to do risk analysis to understand the cost of potential changes. “With the new administration going in, there needs to be a higher scrutiny of business impacts,” said Dea.
A dose of deregulation
Trump also has gone on record for wanting to reduce the number of federal regulations, saying that he will “formulate a rule that for every new regulation adopted, two must be eliminated.”
If this comes to pass, manufacturing may reap the benefit. “On Day One, President-elect Trump can deliver a boost to manufacturing by taking the lead on balancing our regulatory system,” said National Association of Manufacturers (NAM) president and CEO Jay Timmons. “As this study demonstrates, manufacturers work diligently to comply with regulations handed down from Washington. We believe in smart regulations that keep our communities and workplaces safe, but too often, these rules go too far or are too complex.”
A NAM study released this week, titled Holding Us Back: Regulation of the U.S. Manufacturing Sector, found that currently there are 297,696 federal regulations on the books that restrict manufacturing operations. “Eighty-seven percent of manufacturers surveyed say that if compliance costs were reduced permanently and significantly, they would invest the savings on hiring, increased salaries and wages, more R&D or capital replacement,” the study said.
What will the impact of ending trade agreements likely have on your business? Do you think fewer regulations will bring benefits? Let us know in the comments section below.
— Hailey Lynne McKeefry, Editor in Chief, EBN